Question 1

On February 16, a company declares a 34 ′\prime′  dividend to be paid on April 5. There are 2 million shares of common stock issued and 100,000 shares of treasury stock. What does the company record on April 5?

Accepted Answer

A)   A debit to Dividends Payable and a credit to Cash for $680,000.
B)   A debit to Dividends Declared and a credit to Dividends Payable for $646,000.
C)   A debit to Dividends Payable and a credit to Cash for $646,000.
D)   A debit to Dividends Declared and a credit to Dividends Payable for $680,000. E) A) and B)
F) A) and C)

Question 2

The incorporation of companies in the U.S. is controlled by:

Accepted Answer

A)   state governments.
B)   local governments.
C)   the federal government.
D)   the courts.E) A) and C)
F) None of the above

Question 3

If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan, your ownership percentage:

Accepted Answer

A)   remains the same because the company now has more assets.
B)   falls from 2.5% to 2%.
C)   remains the same because the company now has fewer liabilities.
D)   increases because the company now has more stock outstanding.E) C) and D)
F) A) and C)

Question 4

Issuing stock to obtain financing is called equity financing.

Accepted Answer

A) True 
 B)False

Question 5

At the end of the accounting period, but before closing entries are made, Harry, the proprietor of Harry's Bar and Grill, has a debit of $24,500 in his drawing account and a credit of $126,800 in his capital account. If his capital account has a credit balance of $137,900 after the closing, what was his net income?

Accepted Answer

A)   $11,100
B)   $35,600
C)   $113,400
D)   $13,400E) All of the above
F) A) and D)

Question 6

Holders of common stock receive certain benefits, such as a residual claim, which:

Accepted Answer

A)   is the right of stockholders to be paid back their investment before anyone else if the company ceases operation.
B)   is the right to oversee management of the company.
C)   is the right to share in any remaining assets after creditors have been paid off, should the company cease operations.
D)   is the continuing right to receive a share of the company's profits in the form of dividends.E) B) and C)
F) A) and B)

Question 7

If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is:

Accepted Answer

A)   Dividends Payable.
B)   Common Stock.
C)   Share Capital.
D)   Retained Earnings.E) A) and B)
F) A) and C)

Question 8

All else equal, when a company uses excess cash to buy back some of its outstanding common stock, which of the following ratios will be affected directly in the manner described below?

Accepted Answer

A)   The return on equity (RO
E)   will decrease.
B)   Earnings per share (EPS)  will increase.
C)   The inventory turnover ratio will increase.
D)   The receivables turnover ratio will increase.E) A) and B)
F) A) and C)

Question 9

A corporation had 50,000 shares of $20 par value common stock outstanding. The board of directors declared and issued a 50% stock dividend. The market value of the stock was $27 per share. What is the journal entry to record this stock dividend?

Accepted Answer

A)   Option: A
B)   Option: B
C)   Option: C
D)   Option: DE) A) and D)
F) All of the above

Question 10

Which of the following statements is NOT true?

Accepted Answer

A)   The legal capital of a corporation represents an amount that cannot be returned to the owners while the corporation still exists.
B)   Investors in a corporation are called stockholders.
C)   The right to receive a dividend is one of the basic rights of preferred stockholders.
D)   Compared with preferred stock, common stock usually has a favorable preference in terms of dividends.E) B) and C)
F) A) and D)

Question 11

Jackson and O'Neill open a partnership that produces gates. Jackson provides $30,000 of capital while O'Neill contributes $90,000 of capital; they agree to split net income by the same proportion. The partnership's net income is $80,000 for the first year. They did not draw any income out of the business or add any additional capital during the first year. At the end of the year, the partners' equity is:

Accepted Answer

A)   $70,000 for Jackson and $130,000 for O'Neill for a total of $200,000.
B)   $200,000 minus income tax expense for the partnership.
C)   $200,000 minus the income tax paid by each partner.
D)   $50,000 for Jackson and $150,000 for O'Neill for a total of $200,000.E) B) and C)
F) C) and D)

Question 12

One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce retained earnings.

Accepted Answer

A) True 
 B)False

Question 13

Treasury stock is an asset account.

Accepted Answer

A) True 
 B)False

Question 14

The ROE ratio measures:

Accepted Answer

A)   the return stockholders receive in dividends for each dollar of their investment.
B)   the return stockholders receive in dividends and stock price growth for each dollar of their investment.
C)   the amount earned by the company on each dollar contributed by stockholders and earnings reinvested in the company.
D)   the amount earned by the company on each dollar obtained from equity and debt financing.E) A) and B)
F) A) and C)

Question 15

All other things equal, the higher the Return on Equity ratio the better the financial performance of the company.

Accepted Answer

A) True 
 B)False

Question 16

GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later it reissues this sto ck for $65 a share. The stock reissue would be recorded as:

Accepted Answer

A)   a debit to Cash of $19.5 million and a credit to Treasury Stock of $19.5 million.
B)   a debit to Cash of $13.5 million, a debit to Additional Paid-in Capital of $6 million, a credit to Treasury Stock of $13.5 million, and a credit to Stockholders' Equity of $6 million.
C)   a debit to Cash of $19.5 million, a credit to Treasury Stock of $13.5 million, and a credit to Additional Paid-in Capital of $6 million
D)   a debit to Cash of $13.5 million, and a debit to Stockholders' Equity of $6 million, a credit to Treasury StockE) None of the above
F) All of the above

Question 17

An additional paid-in capital account could be used with all of the following transactions EXCEPT:

Accepted Answer

A)   The issuance of par value stock at a price greater than the par value.
B)   The reissuance of treasury stock at a price less than the price paid when the stock was reacquired.
C)   The reissuance of treasury stock at a price greater than the price paid when the stock was reacquired.
D)   The issuance of no par stock.E) B) and D)
F) A) and D)

Question 18

Preferred stock is generally classified as stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 19

Which one of the following events would not require a journal entry on a corporation's books?

Accepted Answer

A)   2-for-1 stock split
B)   100% stock dividend
C)   2% stock dividend
D)   $1 per share cash dividendE) A) and B)
F) All of the above

Question 20

A cumulative dividend preference means that:

Accepted Answer

A)   preferred stockholders are paid dividends before common stockholders are paid dividends for the current year only.
B)   unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends.
C)   preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation.
D)   unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the currentE) B) and C)
F) A) and D)

Exam 11: Reporting and Interpreting Stockholders Equity

A cumulative dividend preference means that:

Correct Answer
verified

On February 16, a company declares a 34 $\prime$ dividend to be paid on April 5. There are 2 million shares of common stock issued and 100,000 shares of treasury stock. What does the company record on April 5?

Correct Answer
verified

The incorporation of companies in the U.S. is controlled by:

Correct Answer
verified

Preferred stock is generally classified as stockholders' equity.

Correct Answer
verified

All other things equal, the higher the Return on Equity ratio the better the financial performance of the company.

Correct Answer
verified

All else equal, when a company uses excess cash to buy back some of its outstanding common stock, which of the following ratios will be affected directly in the manner described below?

Correct Answer
verified

Issuing stock to obtain financing is called equity financing.

Correct Answer
verified

A corporation had 50,000 shares of $20 par value common stock outstanding. The board of directors declared and issued a 50% stock dividend. The market value of the stock was $27 per share. What is the journal entry to record this stock dividend?

Correct Answer
verified

Which of the following statements is NOT true?

Correct Answer
verified

One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce retained earnings.

Correct Answer
verified

The ROE ratio measures:

Correct Answer
verified

Treasury stock is an asset account.

Correct Answer
verified

Which one of the following events would not require a journal entry on a corporation's books?

Correct Answer
verified

GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later it reissues this sto ck for $65 a share. The stock reissue would be recorded as:

Correct Answer
verified

If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is:

Correct Answer
verified

Holders of common stock receive certain benefits, such as a residual claim, which:

Correct Answer
verified

Correct Answer
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Correct Answer
verified

If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan, your ownership percentage:

Correct Answer
verified

An additional paid-in capital account could be used with all of the following transactions EXCEPT:

Correct Answer
verified

Exam 11: Reporting and Interpreting Stockholders Equity

A cumulative dividend preference means that:

Correct AnswerverifiedShow Answer

On February 16, a company declares a 34 ′\prime′ dividend to be paid on April 5. There are 2 million shares of common stock issued and 100,000 shares of treasury stock. What does the company record on April 5?

Correct AnswerverifiedShow Answer

The incorporation of companies in the U.S. is controlled by:

Correct AnswerverifiedShow Answer

Preferred stock is generally classified as stockholders' equity.

Correct AnswerverifiedShow Answer

All other things equal, the higher the Return on Equity ratio the better the financial performance of the company.

Correct AnswerverifiedShow Answer

All else equal, when a company uses excess cash to buy back some of its outstanding common stock, which of the following ratios will be affected directly in the manner described below?

Correct AnswerverifiedShow Answer

Issuing stock to obtain financing is called equity financing.

Correct AnswerverifiedShow Answer

A corporation had 50,000 shares of $20 par value common stock outstanding. The board of directors declared and issued a 50% stock dividend. The market value of the stock was $27 per share. What is the journal entry to record this stock dividend?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT true?

Correct AnswerverifiedShow Answer

One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce retained earnings.

Correct AnswerverifiedShow Answer

The ROE ratio measures:

Correct AnswerverifiedShow Answer

Treasury stock is an asset account.

Correct AnswerverifiedShow Answer

Which one of the following events would not require a journal entry on a corporation's books?

Correct AnswerverifiedShow Answer

GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later it reissues this sto ck for $65 a share. The stock reissue would be recorded as:

Correct AnswerverifiedShow Answer

If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is:

Correct AnswerverifiedShow Answer

Holders of common stock receive certain benefits, such as a residual claim, which:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan, your ownership percentage:

Correct AnswerverifiedShow Answer

An additional paid-in capital account could be used with all of the following transactions EXCEPT:

Correct AnswerverifiedShow Answer

Correct Answer
verified

On February 16, a company declares a 34 $\prime$ dividend to be paid on April 5. There are 2 million shares of common stock issued and 100,000 shares of treasury stock. What does the company record on April 5?

Correct Answer
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